June 29, 2010

Secrets of Magic Revealed: Keep Your Eye on AIG’s Disappearing Act

Don’t look now, but AIG is in the middle of a great magic trick. As it tries (and mostly fails) to generate the billions needed to pay back its vast TARP loans, the enormous conglomerate corporation has been trying to teleport
its more successful subsidiaries out from under its personal cloud of
bad press (see CNN's 10 Most Hateable Companies Not Named BP). It's now working to stash them away under a nice new name that doesn’t
scream bailouts, bonuses or bad, bad management.

In the process they hope to
make everyone forget all about the blatant mismanagement that almost
destroyed their company (and the economy as a whole), the four bailouts
totaling a reported $182.3 billion in taxpayer-financed loans, and the approx. $265 million in bonuses that would be given out between 2009 and 2010, according to the New York Times.

In March 2009, after announcing a $61.7 billion(!) loss for their fourth quarter, AIG decided that it might have to change things up a bit. They were helped along when the government made AIG’s reorganization a prerequisite if the company wanted an additional $30 billion in taxpayer aid and a reworking of old loans. The company therefore took its property and casualty business, and severed it from the AIG name, placing it under the leadership of Mr. Kristian P. Moor. Moor wasn’t exactly an outsider – he ran AIG’s property-casualty business as executive vice president.The “new” company was temporarily called AIU Holdings. Id. But apparently those first two initials conjured up some bad memories because, last year, AIU transformed itself again, this time into Chartis (the Greek work for “map.” Talk about a non-sequitur.) again run by Mr. Moor, who told Bloomberg at the time:

“It was an overwhelming response that we should change our name further,” Moor said. “It just keeps people focused purely on our organization.”

And it should keep people away from focusing on his $10 million compensation package in 2009 ($2,400,000 bonus, $915,385 salary, $6,691,640 in restricted stock awards, and $37,229 in other forms of compensation for 2009.) Turns out the new executive pay restrictions, which the President ordered for all TARP recipients in early 2009, didn’t kick in for Mr. Moor until November of that year. But he clearly won’t be struggling in 2010. His cash salary stands at $700,000, his stock salary rings in at $5,000,000, and his incentives (although in the form of unvested TARP RSUs) amount to $1,900,000, all adding up to a paltry $7,600,000, not counting the inevitable bonus.

Unraveling the tangled and mismanaged mess that AIG became is already the subject of several books, and the corporate sleight of hand just keeps getting more and more complex. A review of this tangled mess of companies that almost toppled the economy even further into recession led Elizabeth Warren, Chairman of the Congressional Oversight Panel on TARP to comment recently:

“The company was a corporate Frankenstein, a conglomeration of banking and insurance and investment interests that defied regulatory oversight.”

Now this corporate Frankenstein is trying to shuffle up its parts anew in an effort to make itself presentable to consumers and stockholders alike. Chartis is still 100% owned by AIG, though you certainly couldn’t discern any connection between the two by glancing at Chartis’ homepage. And figuring out what’s become of all the more than 200 AIG subsidiaries reported to be in existence as of 2008 is quite the task. Many appear to have been sold or given new names. For example, a search for the original American Home Assurance Co. reveals that the company no longer has its own functioning website and doesn’t appear on AIG’s website. This is the same company where two executives pled guilty to illegal conduct in 2004 after profiting from a contingent commissions scheme, and which was also one of the subsidiaries named in a 9-state antitrust suit settled by AIG in April 2010. Only careful searching reveals that American Home Assurance was itself a subsidiary of another AIG subsidiary, AIG Commercial Insurance Group, which was included in the creation of AIU/Chartis.

The whole thing starts to seem like some great big corporate nesting doll, at the very bottom of which is AIG’s reputation. The problem, of course, is that this kind of corporate sleight-of-hand makes it increasingly difficult for government to regulate and for everyday people to hold big corporations accountable. So you’d better look real close at what happens over these next few months with AIG. Or else, you might miss the trick entirely.

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